Coalition pushes for contract protection

SALEM, Ohio — The use of contracts for grain and livestock production boomed in the 1990s. Nearly all poultry production, which moved toward contracts long ago, is done under contracts with vertically-integrated processors. Today, contract use is accelerating with swine, specialty crops and identity preserved products.

Now, there’s a push in the Midwest for legislation to provide basic protection to farmers who produce or market through contracts.

A coalition of state attorneys general last month proposed model legislation, the Producer Protection Act, addressing contract production issues in agriculture.

Although the attorneys general have no legislative powers, they are hoping the proposal will be picked up and adapted in individual states to offer legal protection for producers entering into contracts with processors.

“Contracting has its place and its benefits, but we want to be sure farmers get a fair shake,” said Iowa Attorney General Tom Miller when introducing the proposal. “There can be a huge disparity in bargaining power between farmers and contractor companies. We’re working to be sure the scales aren’t tipped against ordinary producers.”

Minnesota has had a contract production law on its books since 1990, but recently updated the legislation. The changes take effect in 2001.

The model legislation created by the attorneys general includes concepts central to the revised Minnesota legislation, including requirements that contracts:

— be written in plain language,

— provide clear disclosure of risks for producers, and

— feature a three-day “cooling off” period after the contract is signed.

This cooling off period gives the producer a chance to have the contract reviewed by a lawyer. If the producer wishes, he or she could cancel the contract without penalty during the remainder of the cooling off period.

“It’s important that both sides of a contract understand it,” said Atty. Paul Strandberg, a project manager with the Minnesota Department of Agriculture. The department was instrumental in pushing the bipartisan legislation that was enacted this year. “I’ve seen contracts that even for me, an attorney, are totally incomprehensible.”

Several of the measures are also based on laws that recently were adopted in Iowa — banning confidentiality clauses in contracts, for example, and giving farmers a first-priority lien for payments in case a contractor company goes out of business.

But at a two-day meeting last month in Tennessee of American Farm Bureau Federation members, legal analysts and state government officials, farmers weren’t sure if they wanted legislative protection or, if they did, what type of protection,

“Different commodities react differently,” said Joe Miller, AFBF commodity specialist. “Poultry is different from lemons, which are different from corn.”

Although the Farm Bureau has not created a formal position on the attorneys general model legislation, Miller said the proposal is extensive, “and that concerns us. It’s nearly impossible to cover everything.”

Miller added that state-by-state enactment of legislation could create a patchwork of rules. “Fifty different state laws would be chaos.”

Regardless, Miller expects to hear more about proposed contract production protection legislation across the country in the next year. “It’s a hot issue in many states,” he said.

Both Miller and the coalition of attorneys general said what prompts closer inspection of contracts is increasing consolidation among processors.

“We worry that this conglomeration of economic power may lead to anticompetitive practices,” said the attorneys general in a joint statement, “and adversely affect the prices paid to farmers for commodities and the prices paid by consumers for food.”

“Some people say contracts create consolidation and then you get into the whole consolidation issue,” Miller said. “We look at it as a risk management tool; some producers like it and some producers don’t.”